Weekly round up
UK markets saw a modest fall this week with investors continuing to worry about recession risks and higher inflation, resulting in the FTSE 100 Index dropping 0.1% to trade at 7,100 points at the time of writing.
The UK economy defied forecasts and returned to growth in May after a contraction in April, surprising economists and raising analysts’ expectations of a significant interest rate rise by the Bank of England at its next meeting.
Output grew 0.5% between April and May, figures from the Office for National Statistics showed on Wednesday, much better than the flat performance expected. Nevertheless, expectations for the quarters ahead remain grim amid soaring inflation and political instability.
The British Pound weakened towards $1.18, its lowest level in over two years amid the broad rush to the safety of the US Dollar after a higher-than-expected US inflation reading increased the probability of a 1% rate hike by the Federal Reserve this month.
In Europe, the Euro reached parity with the Dollar, a level not seen in two decades as Europe’s economic outlook darkens. A rising number of foreign currency analysts are now expecting the common currency to fall deep into the $0.90 range in coming months.
The Euro has been hammed by worries about a looming economic slowdown after soaring commodity prices, stoked by Russia’s invasion of Ukraine. It is predicted that Europe’s intensifying energy woes will worsen in the colder winter months, sparking fresh challenges.
In the commodity markets, Brent crude futures traded below $100 per barrel on Friday and are set to end the week lower, as escalating fears of a demand-sapping economic slowdown outweighed persistent supply-side issues.
Brent fell briefly below $95 per barrel on Thursday to levels last seen before Russia invaded Ukraine, as investors worried that faster monetary tightening aimed at curbing inflation would hit oil demand.
US President Joe Biden is set to visit Saudi Arabia on Friday where he will attend a summit of Gulf allies and call for them to ramp up oil production. However, OPEC member countries are reportedly pumping at maximum capacity and the prospects for additional supply are unclear.
Gold traded near 11-month lows around $1,700 an ounce on Friday and is on track for a fifth straight weekly decline, as a strong Dollar and expectations for even more aggressive interest rate hikes dampened bullion demand.
The Chinese economy grew 0.4% year-on-year in the second quarter of 2022, missing forecasts for a 1% expansion and slowing sharply from a 4.8% growth in the previous quarter. The latest figures highlighted severe disruptions brought by Covid lockdowns and piled pressure on Chinese authorities to deliver more stimulus after the Central Bank signalled that it is unlikely to cut interest rates further.
US equity futures rose on Friday as investors await more bank earnings reports, with Wells Fargo and Citigroup set to release quarterly results later in the day. The US benchmark S&P 500 Index closed lower on Thursday as investors continued to assess the outlook for tighter monetary policy, while monitoring a slew of disappointing earnings reports from banks.
The annual inflation rate in the US accelerated to 9.1% in June of 2022, the highest since November of 1981, from 8.6% in May. This figure compares with market forecasts of 8.8%, raising the likelihood of even faster interest rate increases by the Federal Reserve.
Adding to the gloomy outlook, JPMorgan Chase missed Wall Street expectations on earnings and revenue, sending shares of the bank down 3.5%. Shares of Morgan Stanley also came under pressure after the bank missed estimates.
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